A Family Feud Leaves the Future of This Kefir King in Doubt

Lifeway claims 95% of the U.S. kefir market it helped create. (Ben Gabbe/Getty Images)

The history of Lifeway Foods seemed straight out of the American dream before its founding family started feuding.

Now the spat could decide the future of the business. A shareholder vote that ends Friday will help determine Lifeway board control. In November, French dairy giant Danone made a bid for the company.

Michael and Ludmila Smolyansky, immigrants from the former Soviet Union, began selling kefir—a tangy, cultured dairy drink—in the 1980s and took the company public in 1988. When Michael died in 2002, the couple’s daughter Julie took the reins as chief executive, and she still runs it.

Lifeway today claims 95% of the U.S. kefir market it helped create. Sales nearly doubled in the past five years, to $186.8 million in 2024, as more consumers turn to protein- and probiotic-rich foods.

But beneath the health-focused exterior, the Morton Grove, Ill.-based company has been the subject of a yearslong power struggle among members of the founding family, which together own more than 40% of shares. The battle pits Julie**,** 50, against her mother, Ludmila—usually called Lucy—and her younger brother Edward, both of whom the company fired in 2022. The two ousted family members have mounted several proxy fights since, seeking to remove Julie and gain control of the business.

A consent statement filed with the Securities and Exchange Commission earlier this month by Lucy and Edward is the latest chapter in this fight. Mother and son are seeking shareholder approval to remove and replace the board, including Julie, alleging poor governance, declining operating performance, and nepotism.

At the same time, Lifeway and Danone are battling each other over the company’s future. The French conglomerate has owned more than one-fifth of Lifeway shares since 1999, and made two bids to purchase the company last year. Lifeway rejected both.

A Family Dissolved

For the first two decades of Julie’s reign as CEO, the kefir business was lucrative, and there were no outward indications of family friction. That changed in 2022.

In a January SEC filing that year, Lifeway stated that Edward, then chief operating officer, had left the company and that Lucy’s $500,000-a-year consulting agreement had been terminated.

The company didn’t provide more details. But in a January lawsuit claiming Edward had induced Lucy to distribute their late father’s shares in the company unequally, Julie claimed Lifeway had hired a law firm in 2019 to investigate “allegations of inappropriate conduct involving Edward.” In the same Cook County, Ill., circuit court filing, she alleged Edward appeared intoxicated at a board meeting in 2021, which led to a leave of absence and eventual termination.

Edward, now 45, didn’t comment on the lawsuit but denied the allegations of inappropriate conduct and intoxication in an interview with Barron’s, and said the investigation was neither independent nor thorough. He did confirm he had been fired.

“I was a whistle-blower,” Edward explained. “I was upsetting the apple cart.”

Within months of their departure from Lifeway, the mother and son began a campaign to oust the board, install themselves, and change the company’s strategic direction. At the time, Lucy and Edward together owned around 38% of Lifeway shares, which were trading at less than $6 apiece, according to SEC filings.

The two sides reached a truce in the summer of 2022, with Lifeway agreeing to explore unspecified “strategic alternatives” and appoint Lucy to the board. The company also paid a combined $500,000 in compensation to Lucy and Edward to settle disputes over their terminations, though it didn’t admit wrongdoing. But in February 2023, the pair alleged Lifeway had breached the agreement by failing to properly review strategic alternatives like selling the company. Two-plus years of legal battles and personal barbs have followed.

There have been five lawsuits between family members or the company, ranging from trade secrets disputes to tortious interference cases. A Cook County Circuit Court issued a protective order in 2024 that prohibits Edward from contacting his sister Julie or her family.

“I actually don’t want her contacting me for the rest of my life, not the other way around,” Edward told Barron’s. He sought his own 2024 restraining order against his sister, though it was voluntarily dismissed earlier this year in a private settlement agreement between the two parties that also saw Julie’s restraining order extended, records show.

Dueling Narratives

Compensation is a longtime issue at Lifeway. After just 52.5% of shareholders approved the company’s pay advisory policies in 2019, Lifeway created a standing compensation committee to improve oversight of executive pay and reduced Lucy and Edward’s compensation packages. Edward then raised concerns when the board granted Julie a $2 million retention bonus last year. The award vests quarterly, and Julie is obligated to repay unvested portions if she leaves Lifeway.

Retention bonuses aren’t standard practice, said R.J. Bannister of Farient Advisors, an executive compensation consulting firm. Boards typically use them to address a particular issue, such as when there’s a risk of retirement and no succession plan, he added*.*

Lifeway Foods CEO Julie Smolyansky at a 2019 event in Cincinnati, Ohio. Photo: Duane Prokop/Getty Images

In his activist campaigns, Edward also has attacked the role of Julie’s spouse Jason Burdeen, who serves as her chief of staff. The board’s compensation committee granted Burdeen a pay package worth $313,800 last year. Edward is calling for an anti-nepotism clause in the company’s bylaws as part of the consent statement vote.

Burdeen told Barron’s he began at Lifeway a decade ago at Edward’s request, first on a volunteer basis, and that his pay receives scrutiny during compensation reviews due to his relationship with Julie.

Lifeway’s financial results are also a matter of contention. Net sales have climbed each of the past five years, nearly doubling from $93.7 million in 2019 to $186.8 million in 2024. The company posted net losses in 2017 and 2018, but has been profitable since.

In 2024, it posted net income of $9 million and earnings before interest, taxes, depreciation, and amortization (Ebitda) of $17.2 million. Management said it was on track to deliver Ebitda of between $45 million and $50 million by 2027, which would require both continued rapid revenue growth and margin expansion.

Edward contends that Lifeway can do better.

“If someone’s measure of success is 10% growth, then I think that you’re selling yourself short,” Edward said.

Others disagree. The company’s results don’t seem to support Edward and Lucy’s accusations of sloppy management and poor governance, said Ben Klieve, an analyst at Lake Street Capital Markets. Instead, Klieve sees “relatively stable margins and a flawless balance sheet.”

For their part, Julie Smolyansky and Burdeen think Edward’s crusade to remake Lifeway’s leadership is about revenge and personal resentments, rather than a good-faith effort to improve shareholder value.

“He was terminated from a company that his father founded, so it’s a very heavy burden for him to carry,” Burdeen said of Edward Smolyansky. “It would be incredibly hard for anybody to accept.”

Julie, meanwhile, told Barron’s she was proud of the way the company and she as an executive have withstood the crisis within her family.

A Letter From Danone

Last September, Julie received a letter from the North American subsidiary of France’s Danone.

Danone made an all-cash offer to acquire Lifeway for $25 a share. The price represented a 59% premium to the stock’s three-month average price before the bid. Lifeway’s board turned it down. When Danone bumped its bid to $27 a share, Lifeway again declined, saying the price undervalued the business. Shares rose to around $25 after news of the first bid became public, and the price has traded around that level since then.

Lifeway’s dominance of the kefir market and the trendiness of the product merit a premium valuation, said Klieve. He thinks the company could fetch more than $27 a share. Julie, too, believes current management can take the company even further.

“There is so much inescapable buzz around Lifeway,” the CEO said.

A 1999 shareholder agreement gave Danone a large stake in Lifeway—currently around 23%—plus certain anti-dilution and governance powers. Most notably, the French outfit has the ability to block Lifeway’s board from issuing additional shares to Julie, which it had exercised in past years when the board had asked to grant more shares to her.

“I’ve rarely encountered a situation where a minority shareholder has such direct influence over how a CEO is paid,” said Shane Dikolli, an executive compensation expert at the University of Virginia’s Darden School of Business.

Danone declined to comment for this article.

In addition to rejecting Danone’s acquisition bids, Lifeway’s attorneys sent Danone a letter last November calling the 1999 agreement anticompetitive and void because it wasn’t unanimously approved by all shareholders. The next month, the board granted Julie a backlog of 283,337 shares—worth around $6.5 million at the time—without the French company’s permission.

“The board has seemingly greenlit a value-destroying gifting program for the CEO in blatant violation of the Shareholder Agreement,” wrote Shane Grant, Danone’s deputy CEO, in a letter to the Lifeway board after Julie’s share issuance became public on Dec. 23. “Having ignored a 25-year-old contract for Ms. Smolyansky’s personal benefit, further litigation to the detriment of the other shareholders is forthcoming.”

Danone sued Lifeway and each of its board members in March for breach of fiduciary duty for issuing the shares to Julie. Lifeway countersued.

Edward has pointed to the multimillion-dollar share award to Julie as evidence the board overpays his sister. Having called for a sale for several years, Edward also believed Lifeway should have sold to Danone last year for as much as $27 a share.

“That’s a great exit for a lot of shareholders,” Edward said.

The Swing Vote

After Lifeway rejected Danone’s offers, Edward resumed his activist campaign, culminating in the consent statement submitted to the SEC earlier this month. He said he is confident his proposal to remove the board and install himself, his mother, and a slate of other candidates will get shareholder approval once this month’s votes are tallied.

“I speak to shareholders all the time,” Edward said. “Every time we make a filing, new people jump into the tent.”

Lifeway called Edward’s claim “broad” and unsupported, and said it wasn’t reflected in his previous proxy contest attempts.

But there’s one vote no one is sure of: Danone.

Combined with Lucy and Edward Smolyansky, who say they together control about 23% of voting shares, the French company could get the activist effort close to the 50% threshold. If Danone sides with the incumbents, however, the dissidents face an uphill battle.

Given Danone and Lifeway are suing one another, the French company might be expected to back Edward and Lucy. In theory, Danone could help install Edward’s slate of directors, convince Lifeway to sell, and dominate the American kefir market. Edward said he hasn’t had any contact with the company.

Lifeway, however, is hoping Danone sees the kefir maker’s strong performance, compares the two board slates, and makes a safe decision for its own shareholders, said Burdeen.

Analysts at Institutional Shareholder Services sided with the current leadership, counseling investors to ignore the consent solicitation in a July 23 report. “The dissident has not presented a compelling case for change, let alone a case for a majority position on the board,” the researchers wrote.

Whichever way Danone and other shareholders vote, the Aug. 1 deadline is unlikely to be the end of the Smolyansky family face-off. Lifeway contends that the consent statement vote is unlawful, and Edward expects the company’s fate to be decided in court.

The only certainty is the toll this conflict has already taken.

“It’s so horrible and unfortunate that it came to this,” Burdeen said. “We were a very close family.”

Write to Nate Wolf at nate.wolf@barrons.com